US Economic Indicators Preview

(Week of 8 to 14 March 2010)

• Trade deficit (Jan): widening again
• Retail sales (Feb): weather-related setback
• UMI consumer sentiment: more or less unchanged

After 13 consecutive declines, wholesale inventories had risen sharply in October and November. They fell by 0.8% mom in December, but we expect the inventory buildup to have resumed in January, and wholesale inventories could have gone up by 0.6% mom. Total business inventories, which fell slightly by 0.2% mom in December, are also likely to have increased in January, by around 0.3% mom, as it is already known that factory inventories went up by 0.2% mom.

The Congressional Budget Office (CBO) estimates that the budget deficit was $223bn in January, almost $30bn more than a year ago, although revenues appear to have been $16bn higher due to corporate receipts. But outlays could have been $46bn higher than last year, mainly due to the “Making Work Pay” tax credit. Outlays for net interest, unemployment benefits and education will have increased too.

The trade deficit surged from $36.4bn to $40.2bn in December, mainly due to restocking of oil inventories. Higher oil prices played a lesser role, and thus the real trade deficit also jumped by almost $3bn. The trade balance often improves after having deteriorated to such an extent, but in January import prices surged by 1.4% mom, which will have had a positive impact on nominal imports. In addition, the Department of Energy reported a significant increase in oil imports. But the deterioration in Chinese exports suggests that US imports of goods might not have risen as much as in December. Exports, which were up 3.3% mom in December, could have increased again markedly, as the ISM export orders component improved significantly. All in all, we expect the trade deficit to have widened to about $41.5bn in January.

Initial jobless claims had actually declined to about 430k at the end of 2009, but due to severe winter weather they began to rise again, reaching almost 500k February. In the previous week, they had corrected downwards to 469k. We expect jobless claims to have fallen again to about 440k in the week ending 6 March, as the severe weather conditions had eased somewhat.

As indicated by the massive drop in consumer confidence, retail sales could have fallen by 0.4% mom in February. According to industry figures, domestic vehicle sales dropped by about 3.5% mom, and the severe winter weather and the snow storms could have dampened total sales noticeably.

The University of Michigan's (UMI) preliminary consumer sentiment for February declined slightly from 74.4 to 73.6. Despite the unfavourable weather conditions, the current assessment was slightly higher than in January, but expectations fell back. So far the outlook for March has been mixed: gasoline prices, which declined in the course of February, rose again at the beginning of the month. On the other hand, stock prices went up and the weekly ABC consumer comfort poll stopped deteriorating. As the current level of consumer sentiment is relatively high compared to the Conference Board's index, which had plunged from 56.5 to 46.0 in February, we predict that UMI's consumer sentiment will have remained unchanged at best in March.

BHF-BANK
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